The Daley Note: June 16, 2023
An expansion of the Trans Mountain Pipeline is on track for completion in early 2024, providing a new outlet to Asian markets for producers and shippers in Western Canada.
Trans Mountain transports crude oil and refined products from Edmonton, AB to refineries and terminals in British Columbia and Washington. Crude oil is also shipped offshore to markets in Asia and on the US West Coast via Westridge Marine Terminal in Burnaby, BC.
The Government of Canada bought Trans Mountain from Kinder Morgan (KMI) in June 2018 and began construction on the expansion in 2019. The project will twin the existing line, adding 590 Mb/d of capacity to bring total throughput capacity to 890 Mb/d. The expansion was 82% complete as of March 2023 and is on schedule to be mechanically complete in 3Q23. The expansion has an estimated in-service in 1Q24.
The additional capacity is primarily destined for Westridge, bypassing the Sumas terminal that feeds refineries in Washington. The Westridge terminal will expand to 26 storage tanks with ~5.6 MMbbl of capacity, and have the ability to load 24 Aframax vessels per month (~5-8 MMbbl of capacity). With no deliveries made to Westridge in November 2022, the terminal expansion work appears to be well under way.
The expansion should help lift Western Canadian Select (WCS) crude oil prices. East Daley’s Crude Hub Model forecasts 4% Y-o-Y production growth in the WCSB and no jump in production in anticipation of the increased egress. The expansion has 80% of its capacity committed between 11 shippers, including one US company, two Chinese companies, and the balance held by Canadian shippers.
The Trans Mountain expansion will create spare egress capacity from Western Canada, a rare phenomenon for the normally constrained basin. To meet their commitments, we anticipate shippers will displace some volume from Enbridge’s (ENB) Mainline and Express pipelines and TC Energy’s (TRP) Keystone Pipeline.
Data from the Crude Hub Model indicates the smaller volume of Canadian heavy sour moving to the Patoka, IL and Cushing, OK hubs will lead to increase demand. The additional pressure is likely to narrow the WTI/WCS spread, raising WCS prices to marginal shipping costs (WTI - transportation cost) or a sub-$10/bbl differential. – Kristine Oleszek
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